PA lottery privatization deal raises concerns

The Corbett administration has plans to privatize the lottery system even… (Morning Call FIle Photo )

December 08, 2012|Paul Carpenter

For years, there have been demands that Pennsylvania join the civilized world by privatizing its retail liquor operation.

State stores are a vestige of the frenzy at the repeal of Prohibition in 1933, when it was felt that letting people choose for themselves what to buy and where to buy it would offend puritan principles.

I have favored private liquor stores because of my Adam Smith economic proclivities, but, personally, I always have been happy with the state stores, although I'm not much of a boozer and patronize them only rarely.

The people at the state store near the Walmart in Whitehall Township have been just terrific, except that they stopped stocking Choya Umeshu, a sweet plum wine made in Japan. (It's hard for me to believe there is not a huge demand for Choya Umeshu.)

A few years ago, when Gov. Ed Rendell tried to sell the Pennsylvania Turnpike to private interests in return for a big pile of cash (upward of $2.5 billion) paid in advance to his administration, I strongly objected, expressing doubts that the commercial monopoly would serve public interests very well and noting apparent conflicts of interest.

Even though his Turnpike privatization plan went nowhere, Rendell managed to make the public pay millions of dollars to his former law firm to help plan the doomed deal. Then, just as I had predicted, Rendell got a juicy top job at that same law firm the moment he left office in January 2011.

Now we have a new governor and a new privatization plan, this one aimed at the $3.5 billion Pennsylvania Lottery system.

Gov. Tom Corbett wants to turn the lottery's operation over to a British company, Camelot Global Services, with a promise, cross their hearts, that the Camelot people would arrange for more than $34 billion in profits over the next 20 years.

To guarantee that $34 billion performance, Camelot will have to fork over a big pile of cash (upward of $150 million) paid in advance. (In gambling terms, that's a 226-to-one shot.) An Associated Press story last month, however, said the $34 billion represents the same level of growth the lottery system has seen over the last decade while under state control.

Even more troubling has been the way the Corbett administration developed the privatization proposal, starting in April.

Details were kept secret through much of the year, until it turned out there was only one bidder (Camelot), and then those pesky Democrats in the Pennsylvania Legislature, along with their annoying questions, were kept out of the mix.

Both houses of the Legislature adjourned on Nov. 14, with no way to reconvene before January. Six days later, Corbett's Revenue Department, which runs the lottery system, made its main announcement of the marvelous Camelot bid, pointing out that it is valid only until Dec. 31, so he'll need to sign the contract before then.

In other words, the administration made sure there is no way any legislator can formally ask questions or otherwise make a fuss until after this is a done deal.

Another concern is the involvement of a Chicago-based investment outfit, Greenhill & Co., which, in 2010, helped handle the sale of Camelot by its previous owners to the Ontario Teachers Pension Plan.

It was reported by the Harrisburg Patriot-News this past week that both Greenhill and the new Camelot stand to reap enormous profits if Corbett signs the lottery privatization deal.

And who has emerged as the state's chief adviser in this deal?

"Greenhill is the financial adviser to the commonwealth team negotiating the privatization agreement," I was told Friday by Elizabeth Brassell, spokeswoman for the Revenue Department.

She repeated what has been asserted by the Corbett administration before — that it should not be considered a problem because Greenhill was working with Camelot's previous owners, not its current owners, when it did the work on the pension plan sale. Nevertheless, I asker her if the role of Greenhill did not have the appearance of a conflict.

"There's no [legal] restriction on parties representing different interests and different transactions," she responded.

A divergent view was offered in a press conference on Thursday by Pennsylvania Auditor General-elect Eugene DePasquale, a Democrat who will not officially take office until January. "Any time you try to rush anything, even if it's a great idea, you end up making mistakes," he said. "Rushing to a multimillion, three-decade contract is not good government."

House Democratic Leader Frank Derumody blasted the deal as "a lucrative contract to the lone bidder with no hearings, no legislative approval and no public scrutiny. This whole thing stinks."

I'm not sure it stinks as badly as the privatization deal Rendell tried to make with the Pennsylvania Turnpike, but I'll leave you with one interesting tidbit.

Although I didn't think much about it at the time, it was reported last year that, in addition to getting a fabulous job with the Philadelphia law firm he so generously enriched (with our tax money), Rendell also was hired by a certain Chicago-based outfit — Greenhill & Co.